Tuesday, September 29

Selling my Living Room Furniture

When I lost my job last month, I knew I needed to act fast to shore up my finances. Fortunately, my severance pay continues until November. That gives me 10 weeks to adjust to what will almost certainly be a much lower income moving forward.

My best friend and his family are moving in a couple weeks to a bigger house closer to his job. The last time he moved the family to his current residence, I offered to sell a few pieces of furniture for dirt cheap. So it just made sense to offer up some of my current furniture considering the need to raise funds.

I spent $1,800 at Rooms to Go in March, 2006 for furniture I will be selling for $1,200. This includes a couch, loveseat, chair, two end tables and a cocktail table. The furniture has a bit of wear - the couch has a small cigarette burn from a party that got out of hand and one of the arms was damaged when I stood on it trying to reach the A/C vent.

I'm going to see how long I can go without furniture first, and then replace it on the cheap. Surely I can find a decent couch at one of the local thrift stores.

Sunday, September 27

Frugal Living Gains Acceptance

According to a survey commissioned by Citigroup, 80% of Americans who earn less than $50,000 have cut back on expenses recently. Of the entire group of 2,005 respondents, 63% say their spending habits have forever changed.

Those results are promising, but I wonder if they will hold up. We are a nation of debtors (unfortunately, myself included). Our government is so deep in debt, and our trade deficit so huge, that this country is selling itself off, one piece at a time.

Just how serious a debt problem does this nation have? My next post will bring you an explanation from Warren Buffett.

Saturday, September 26

Response to Barel Karsan's Post : Twin Obligations

Many frugal misers invest in the stock market. Just like I would never overpay for a new outfit, I prefer value in investing as well. One blog that I follow is Saj Karsan's value investing blog. One of his entries this week discussed the underfunded pension obligations of Twin Disc (TWIN), a Wisconsin company that sells marine and heavy duty off-highway power transmission equipment. The stock dropped 14% Friday following publication of this story. The thesis of his article is that Twin Disc has a pension plan that is underfunded by $60MM. Since the company is only valued at $160MM, the pension obligation should be a concern to investors.

I agree that this $60MM pension obligation should be a concern, but let's make sure we understands how this obligation increased from $34MM last year. Like many pension funds, Twin Disc invests its assets in the open market.

  • In 2009, TWIN began the fiscal year (which ended June 30th) with $111MM in plan assets. The company lost $24MM due to the perils of the market. The company paid out just under $9MM in benefits. On June 30, 2009, the pension plan had assets of $77MM.
  • In 2008, TWIN began the fiscal year with $117MM in plan assets. Those assets experienced a negligible gain, but the company paid about $9MM in benefits.

Okay, so for the last two years, the company's plan assets have declined from $117MM to $77MM. The bulk of this decline can be attributed to declining markets and not by mismanagement. If it were due to mismanagement, I would be running in the opposite direction as fast as I could. But, if you go back one more year, to 2007, TWIN began the fiscal year with $104MM in plan assets. The plan earned $14MM on those assets, but only paid out $9.7MM in benefits. Additionally, the company contributed $8.8MM to the plan. So while the company began the fiscal year with $104MM, it ended it with $117MM.

The company has frozen benefit accruals effective August 1, 2009. It estimates benefit payments will average $10MM per year through 2019. It also reports a historical return of 8.5% on its investments. The company needs $118MM in assets earning 8.5% annually to fund pension obligations out of earnings.
  • With markets rebounding, isn't it possible that pension assets could grow by more than 8.5% this year?
  • The company earned $11MM in fiscal 2009, and paid out $3MM in dividends. Assuming business only improves from here, could profits be diverted to the pension plan?
My point is that the pension plan is underfunded, but this should be an item of concern and not one to despair over. With a market cap at $128MM, the P/E ratio based on 2009 earnings is 11. The value investor has to decide whether this is a good price. I'd like to see the stock at $10/share or less, which would give this a trailing P/E in the single digits.

Turn the Water Off to Your Toilet ($1.13/month)

Most hard core misers have a saying you might be familiar with: "If it's yellow, let it mellow. If it's brown, flush it down." That's good stuff, but I can do better.

In my last post I mentioned using a bucket or container to catch the cold water that would otherwise go down the drain when you shower. You can use this water for your indoor plants. But, if that isn't enough, combine it with the following. Read on...

Have you heard of a rain barrel? Basically it is a giant plastic container that you stick under your downspout. There is a hose attached at the bottom so that it basically works like the hose you connect to your outdoor faucet. As long as you get an occasional rain, you have a free supply of water. Most misers would craft a rain barrel themselves, but I had a fairly large gift certificate balance for Amazon so I paid about $100 for a 50 gallon barrel. I purchased the Suncast Rain Barrel.

I save my plastic one gallon milk jugs, rinse them out really well (trust me, you don't want to neglect this step!), and fill them from the rain barrel. Whenever I do flush the toilet, I add one gallon of rain water to the tank. This mixes with the fresh water that would normally fill the tank.

Savings: $1.13 per month.
Math: Most modern toilets use 1.6 gallons per flush. By adding 1 gallon of rain water, I am only using .6 gallons per flush. Where I live, 1 gallon of water costs about .75 cents. If I flush the toilet 5 times per day, I save 5 gallons of water, or 3.75 cents per day. 3.75 cents * 30 days = $1.13 per month.

Thursday, September 24

Take a Sailor Shower ($7.80/month)

Here's an easy way to cut your water and energy bills: cut your shower time. A Sailor Shower will do just that. See, fresh water is in limited supply on the high seas, so Sailors have to be quick and efficient. It's simple: Water On- get wet. Water Off- lather up. Water On- rinse. Here's another tip: use a bucket to catch that cold water when you first turn on the faucet. I'll tell you next time what I do with that water.

Savings: $7.80 per month.
Math: A low flow shower head uses about 2 gallons per minute (the average showerhead uses 4). Where I live, 2 gallons of cold water costs about 1.5 cents. I have a 40 gallon electric water heater, which costs about 75 cents to heat. So, a ten minute shower (20 gallons) costs roughly 52 cents. If I only run the water for 5 minutes, it will cost about 26 cents. 26 cents * 30 days = $7.80 per month.

This isn't me...

Tuesday, September 22

The First Step: Assess Your Situation

Before you can become the ultimate miser, you have to know where you are today and where you want to be. Without a map, you'll make a lot of wrong turns and waste a lot of gas. No one likes to waste gas.

Use Personal Finance Software.
I am a Quicken user myself. Have been for over a decade. There are other options out there. Mint, for example, is being purchased by Intuit, makers of Quicken. It is purely web-based, which means you can manage your finances anywhere in the world pretty much. Quicken gives me the visibility I need to see how my spending compares month over month, for example. It lets me know when my bills are due so I don't miss any payments, and it tells me in real-time my Net Worth.

Create a Document Titled "2009" (or whatever year it is).
This is your free-flowing list of what your goals for the year will be. For example, one of my goals for 2009 was to pay off a mortgage on a rental property. I set that goal a couple of years ago and reached it a full year ahead of schedule. List your near-term (this year) goals, your intermediate-term (next 3 years) goals, and your long-term (lifetime) goals. I think I need $2 million to comfortably retire. That's a long-term goal. I want to add $5,000 to my IRA. That's a near-term one.

List Your Top 5 Money Wasting Habits.
Your list needs to include the manageable habits. If you are addicted to crack rock, leave that off this list. It's probably the dumbest thing you could do, but it's going to be hell to kick the habit, so skip it for now. This list should include those things you know you need to stop doing, and are relatively painless to implement. My Top 5 Money Wasting Habits: 1) eating out without a coupon, 2) leaving the ceiling fan (or light or TV or another energy demon) on when I leave a room, 3) running the dishwasher when it's half empty, 4) letting food expire and go to waste, and 5) talking myself into buying that beautiful BMW in my garage. It's become the bane of my existence and it's gotta go. I must have been drunk the day I talked myself into doing it.

These are the Baby Steps.
In other words, if you struggle with these things, well... as my dentist once told me, "This might hurt a bit." You better buckle up.

Monday, September 21

Let's Get Started

Why am I here, and why should you read this?

I created my first blog way, way back before they were called blogs. The year was 1997, and my life was on an emotional roller coaster (more about that in a future post). I thought I had an interesting story to tell, so I told it to the masses.

Then, everyone started doing this "blog" thing, and I got bored. Sure, there are some gems out there, but the world could do without most blogs. There is a void I can fill. As much searching as I have done, I haven't found the perfect spot for tips on being ridiculously frugal. I've had enough of those sites that encourage the reader to skip Starbucks in favor of a home-brewed Folgers, or the ones that tell you to combine errands to save on gas. These are great ideas, but I'm already doing them.

I am here to ponder what the ultimate miser would do to cut costs to the bone. If you google the word "miser", you'll be depressed by what you see. It turns out to be a miser is to be miserable. That's hogwash. I yearn to be frugal because I want financial freedom. I am so tired of having debt. I am tired of worrying about bills. I would love nothing more than to retire at age 40 and travel the world. Sure, as a miser I'll pack the soap and shampoo bottles from each hotel as I leave...that is, if I spring for a hotel room. But I'll be able to swipe toiletries from any city I want, because I will have financial freedom.

I am already frugal. I hope you will join me on my adventure into becoming the ultimate frugal miser.

Sunday, September 20

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